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Exam 15: Property Transactions: Nontaxable Exchanges

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Question 31

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For the following exchanges, indicate which qualify as like-kind property. a.Inventory of a sporting goods store in Charleston for land in Savannah. b.Investment land in Virginia Beach for office building in Williamsburg. c.Used automobile used in a business for a new automobile to be used in the business. d.Investment land in Paris for investment land in San Francisco. e.Shares of Texaco stock for shares of Exxon Mobil stock.

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Only item b.(investment realty for inves...

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Question 32

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Carl sells his principal residence, which has an adjusted basis of $150,000, for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence for $380,000 one month prior to the sale.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence) ?

A) $0 and $380,000.
B) $0 and $408,000.
C) $28,000 and $352,000.
D) $28,000 and $380,000.

E) A) and B)
F) A) and C)

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Question 33

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Matt, who is single, sells his principal residence, which he has owned and occupied for five years, for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale, he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

Betty owns a horse farm with 500 acres of land (adjusted basis of $600,000) .Fifty acres of the land are condemned by the state for $400,000 in order to build a municipal stadium.Since the fair market value of Betty's farm is significantly decreased by the proximity to the future stadium, the state awards Betty $300,000 in severance damages.Betty does not use the $300,000 to restore the usefulness of the farm and all of the $700,000 ($400,000 + $300,000) proceeds are invested in the stock market.What is her recognized gain or loss associated with the receipt of the severance damages?

Eric and Katie, who are married, jointly own a house in which they have resided for the past 17 years.They sell the house for $375,000 with realtor's fees of $10,000.Their adjusted basis for the house is $80,000.Since they are in their retirement years, they plan on moving around the country and renting.What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence) and if they elect to forgo the § 121 exclusion? $\begin{array} { l l } \underline {\text { With Exclusion }} & \underline {\text { Elect to Forgo }} \\\text { a. } \$ 0 & \$ 0 \\\text { b. } \$ 35,000 & \$ 35,000 \\\text { c. } \$ 0 & \$ 285,000 \\\text { d. } \$ 35,000 & \$ 285,000 \\\text { e. } \$ 285,000 & \$ 225,000\end{array}$

The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

In a nontaxable exchange, the replacement property is assigned a carryover basis if there is a realized gain but receives a new basis if there is a realized loss.

Moss exchanges a warehouse for a building he will use as an office building.The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000.In addition, Moss receives cash of $150,000.What is the recognized gain or loss and the basis of the office building?

Dennis, a calendar year taxpayer, owns a warehouse (adjusted basis of $190,000) that is destroyed by a tornado in October 2019.He receives insurance proceeds of $250,000 in January 2020.If before 2022, Dennis replaces the warehouse with another warehouse costing at least $250,000, he can elect to postpone the recognition of any realized gain.

A factory building owned by Amber, Inc.is destroyed by a hurricane.The adjusted basis of the building was $400,000 and the appraised value was $425,000.Amber receives insurance proceeds of $390,000.A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000.What is the recognized gain or loss and what is the basis of the new factory building?

Dena owns 500 acres of farm land in southeastern Maryland.Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark, NJ.The building has a fair market value of $900,000.Chris assumes Dena's mortgage on the land.What is the amount of Dena's recognized gain or loss on the exchange?

Bria's office building (basis of $225,000 and fair market value $275,000) is destroyed by a hurricane.Due to a 30% co-insurance clause, Bria receives insurance proceeds of $192,500 two months after the date of the loss.One month later, Bria uses the insurance proceeds to purchase a new office building for $275,000.Her adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).

Melvin receives stock as a gift from his uncle.No gift tax is paid.The adjusted basis of the stock is $30,000 and the fair market value is $38,000.Melvin trades the stock for bonds with a fair market value of $35,000 and $3,000 cash.What is his recognized gain and the basis for the bonds?

Kelly, who is single, sells her principal residence, which she has owned and occupied for eight years, for $375,000. The adjusted basis is $64,000 and selling expenses are $22,000.She purchases another principal residence three months later for $200,000.Her recognized gain is $39,000 and her basis for the new principal residence is $200,000.

Evelyn's office building is destroyed by fire on July 12, 2019.The adjusted basis is $315,000.She receives insurance proceeds of $350,000 on August 31, 2019.Calculate the amount that Evelyn must reinvest in qualifying property so that her recognized gain be $20,000.Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion) postponement treatment.

Casualty losses and condemnation losses on the involuntary conversion of a personal residence receive the same tax treatment.

During 2019, Jack and Tonya, a married couple, decided to sell their residence.The residence has a basis of $162,000 and has been owned and occupied by them for 11 years.The house was sold in May for $395,000 with broker's commissions and other selling expenses being $24,000.They purchased a new residence in June for $400,000.What is the adjusted basis of the new residence?

Alyssa's personal residence (adjusted basis of $100,000) was condemned, and she received a condemnation award of $80,000.Alyssa used the condemnation proceeds to purchase a new residence for $90,000.What is Alyssa's recognized gain or loss and her basis in the new residence?

For each of the following involuntary conversions, determine whether the property qualifies as replacement property. a.Chuck's restaurant building is destroyed by fire.He clears the site and builds another restaurant building. b.Diane's warehouse, which she used for storing inventory, is destroyed by a tornado.She purchases another warehouse in which she will store inventory. c.Part of Andrew's dairy farm land is condemned to make way for an interstate highway.He uses the condemnation proceeds to construct a barn to be used for storing cattle feed. d.Liz owns a shopping mall that is destroyed by a flood.Since the tenant occupancy rate was down, she uses the insurance proceeds to purchase an office building that she will rent to tenants. e.Eleanor's Maserati Gran Turismo is stolen.The original cost was $125,000, and she had used it exclusively for personal use.Due to the limited supply of this model, it had appreciated in value.Eleanor received insurance proceeds of $130,000 and uses the proceeds to purchase a replacement Gran Turismo.

In a nontaxable exchange, recognition is postponed.In a tax-free transaction, nonrecognition is permanent.